After working in the mortgage business for a number of years during all the good times of the real estate bubble last decade, my boss came to me and my coworkers and said we as a company were switching our focus to reverse mortgages instead of traditional mortgage loans. I knew at that time in late 2008, because of the real estate and economic issues, that traditional mortgages were not going to be the way to go so I had a choice to make; either find a different job, or try to embrace the reverse mortgage. Well, I have to say I was not excited, at least not at first. I didn’t want to try to find another job, especially with the economy at the time, but I was not interested in the reverse mortgage either. All I had heard about these loans is they are very expensive and the borrower will be at risk of loosing their house to the bank or the government if they do not meet at the qualifications of the reverse mortgage. I thought to myself how could I actually try to sell this loan to people, especially our senior citizens! Luckily for me, I decided to do some research into this loan before I sent any resumes out.
After a little research and studying I quickly learned that what I thought I knew about reverse mortgages was not true at all! In fact, it was amazing to see how many misconceptions there really are about this loan product.
The first thing I learned was that by taking out a reverse mortgage you are not selling or giving your home to the bank or the government. Just like any other mortgage, the lender who loans you the money will place a lien on your property, but they cannot evict you or call the loan due as long as you live in the property, keep it in good condition, and pay the taxes and insurance, even if you don’t make a mortgage payment. After you die, the home goes to your beneficiaries where they have up to 12 months to sell the home or refinance the loan. Notice how the home does not go to the bank or the government! Speaking of the government, the only part they play in this process is they insure the loan to help offset the risk of the lender.
The second main concern I had, was the high fees. Yes it is true that reverse mortgages cost more on average than a traditional loan, but once you see what the fees actually go to, it makes it easier to pay them. Plus in the last year the fees have come down considerably from where they used to be and depending on your situation, most people can get into a reverse with no out-of-pocket costs!
The last concern I had, was those people who take out a reverse mortgage will lose all their equity in their house because they don’t make a payment, and the interest associated with the loan is still accruing. While it is possible that people who get a reverse mortgage can lose the equity they have in their house, it is not the norm. Banks are not in business to lose money. They do not make loans on collateral that is bad, and reverse mortgages are no exception. Banks will only lend a certain amount depending on your age, so don’t expect to get access to 100% of your equity by taking out a reverse mortgage. Banks also know that historically homes appreciate in value, so in most cases, their will be equity left in the property whenever the borrowers passes or moves away. And if by chance there is not equity left, or the home is upside-down…that is where the government comes in and insures the loan. This way neither the bank or the beneficiaries lose by having a house with a mortgage more than the house is worth.
After learning these and some other facts I decided I did not need to find another job, I would be just fine teaching people about reverse mortgages. Since that time, I have helped lots of people get into a reverse mortgage. I have been able to help my customers improve their monthly cashflow, take money that was previously locked up in their home and put it to work, and most exciting of all, I was able to help a couple of clients who were close to being foreclosed on save their house! With the reverse mortgage there are no credit requirements, no income requirements, and no asset requirements (other than the property being loaned on), all you need to be is 62 or older, have enough equity, and have a home that passes an FHA inspection. I have seen this loan literally change people’s lives! I have officially gone from a skeptic to a believer and you can too.